Tips for Private Equity Firms to Make M&A Deals Profitable

M&A Deals Profitable

The year 2015 proved a golden year for mergers and acquisitions. It was the time when deals were on the top, which broke the record of $3.67 trillion (in 2007) to reach #3.96 trillion in 2015. Thereafter, the pace of deal-making took a downturn, resulting in a decreased number of deals in later 2022.

Now, corporate entities have shifted their focus to the time for closing the deal and achieving the projected returns. After all, the outcome is important. Everyone wants to see it.

In this, the role of a chief finance officer (CFO) is key. It’s his duty to carry out due diligence with a thorough understanding. If so happens, the returns on acquisitions would soon be visible. This can be like a walkover if he recognises the challenges that can slow down the volume of such opportunities. If you consider industries like transportation, logistics, healthcare, life sciences, banking, and more ones, they will be able to sustain or even, increase their profitability and revenues. 

This is simply because they have the cash to deal with any challenges. Likewise, private equity firms have dry power, which enables them to invest their cash if their valuations have come down in some sectors. Most likely, these firms prefer an exit strategy over transactions.

In short, the CFO’s role is crucial.

Ways to Make M&A Deals Profitable

These following actions can improve his decision-making. 

1. Get Deep into and Take Time for Due Diligence

The slowdown in merger and acquisition practices during 2021 and 2022 emphasized companies to keep things on a fast track. But, the entry of a competitor hampered its pace. This competitive space pushes the buy-side and sell-side parties to reduce due diligence efforts and focus on financial & legal contract revisions. This process may also require fixing the issues of cybersecurity, operational synergies, sustainability, and other ones once the diligence is over.

If you consider the technology industry, it is still far away from the expected synergies. This happens because of an unstructured deals. It should be streamlined so that the acquirer can receive the expected value sooner. Therefore, the CFO should discover barriers that disturb the speed of due diligence and also, enhance its scope.

2. Improve Governance And Operations To Sharpen Accountabilities

Here, the CFO should assure that the acquired asset’s value is going to increase in a year. This can happen when you intensely search and go through a target’s governance and cost structures. Possibly, the synergies may be operational. In that case, it’s challenging to foresee the boost in EBITDA, for example.

So, he together with corporate development teams can think of areas where the cost can be reduced, who is owing money for achieving that goal, and when the value will be added. So here, the CFO should have detailed understanding of his own company’s cost structure. His knowledge ensures the projected synergies.

3. Treat More Risks As “Project-Critical”

Due diligence efforts should include risk assessments within the target company, which can be concerned with regulatory compliance, cybersecurity, data privacy, ESG, DEI, and human capital. Here, the CFO together with the M&A team assesses what can go wrong and how to fix that issue.

The factors (related to the acquisition target) that affect the acquiring company’s valuation, should be necessarily evaluated. It throws light on how the acquisition will be in real life (if it will be as per assumptions or timelines).

4. Overcome Talent Challenges

The condition of falling short of talent and skills is threatening. The biggest downside of any M&A deal is that the talent in the top-down hierarchy (which is responsible for planning & executing the post-merger process) may look for another opportunity. A recent survey of board members and C-suite executives conveys that they find it a hard nut to crack to adapt to changes (post-M&A deal) in their work culture and business models. 

So, the CFO must focus on this issue and should come up with a retention plan. Likewise, he should also measure the impact of such change on their ability. Getting ready with a plan or packages to lock down key executives in both firms can prevent ill-timed brain drain. However, the CHRO looks into this matter. But, the Chief Finance Officer should understand his responsibility as the sponsor.

The loss of talent can create a critical situation, which can cause losses. Therefore, it’s always good to take a look into talent-related risks and concerns. The deep research has revealed that the deals wherein the CFO is deeply involved in merger integrations capture over and above the planned cost and revenue synergies.


The merger and acquisition deals should be focused on maximising returns or benefits. When it comes to the organization’s deal plans and getting returns, its expectations are often seen as high. So, the CFOs and their teams should be ready to act in time.

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